MFs pumping in recycled IPO money

For the third month in a row mutual funds have been net buyers in the stock markets. Prima facie it looks like they are back in the markets, but the reality is that not much fresh money is being pumped into the market.

In January 2005, reversing a trend which lasted through the last year, mutual funds became net buyers in the equity markets to the tune of Rs 548 crore.

In February, they followed it up with remaining net positive to the tune of Rs 102 crore. In March so far, they have been net buyers to the tune of Rs 266 crore.

However, the purchases are all attributable to the money which has been coming in through the initial public offerings (IPOs). Mutual funds are still pressing sales and most of it is due to redemptions happening in the existing schemes where investors are cashing out, after having made substantial gains. Some of that money is finding its way into the IPOs, so there is no real fresh money coming in.

Not all of the money raised in the IPOs have been invested though. Industry sources said that fund houses are waiting for corrections in between the sporadic rises in order to make their investments.

A chief investment officer with a fund house said, "There are ample opportunities available in the markets and we are looking at undervalued stocks."

However, more new schemes are being launched - largely in the equity space - and mutual funds can be expected to be active in the stock markets for some more time.

In the debt space, mutual funds have been consistent buyers, and in January were net buyers to the tune of Rs 2,680 crore and in February Rs 2,753 crore. In March so far, they have made net purchases worth Rs 805 crore.

Market watchers said that mutual funds need to get more aggressive so that inflows could outpace outflows and for them to have a greater impact on the markets.